Question

As an executive manager you are asked to assign bonuses and raises to the staff. Unfortunately this year, the company has not been as profitable as hoped.   Your staff consists of 5 employees with the following information.

		Salary	Average Performance Rating	Other Information
Employee 1		$75,000	4 of 5	Single, hard worker, your right hand
Employee 2		$75,000	3.5 of 5	Sole income maker for a family of 7
Employee 3		$35,000	4 of 5	Fresh from college, high potential employee
Employee 4		$35,000	4.25 of 5	Career assistant, does this job very well, promotion is not an option
Employee 5		$30,000	3.5 of 5	Singe, young worker has limited potential but does job reasonably well.
Yourself		$200,000	4 of 5

This year you have $10,000 to allocate to yourself and the staff which is a 2.2% increase in compensation costs which is slightly less than the 3% cost of living increase in the economy.

As the executive, you may allocate the $10,000 in raises however you wish on whatever metrics you choose.

Discuss possible (at least 3) allocation methods you may consider, including the reasoning behind the allocation method

Discuss the potential costs and benefits of each choice.

Answer 1

I. First allocation method may be to distribute rest of the staff so as to compensate any increase in cost of living i.e. @ 3%. And remaining to myself.

It can be noted that total salary of the rest of the staff amounts to $250000 and 3% of $250000 amounts to $7500.

Thus, $7500 may be distributed to all the staff @3% of their previous staff. The only rationale behind this allocation method is distributing to rest of the staff @ 3% will not disappoint them as at least they are getting in accordance with inflation rate and their net earning will not go towards negative trend after adjusting cost of living.

Postential cost :-

1 . It will lead to a very less increase in the salary of mine i.e. executive manager i.e. 1.25%.

2 . Employees who have performed well may get disappointed with it as those who have performed below average are given an equal increment with those who have performed exceptionally well.

Benefit :-

1. Benefit is that it will boost the morale of employees as they are being paid more than executive director itself..

2. This will increase the confidence of employees on executive director and thus promote team work.

3 . It will promote equality among all the employees.

II. Second allocation method may be pay everyone in proportion to their salary i e. In ratio of their salary. The basis behind this allocation method is its simplicity and simple reason of proportionality.

Cost :-

1. This method may create an environment of distrust among employees as they may feel that executive director is adopting this methodology so that he can get maximum increment since, executive director have highest salary and distribution in proportion to salary will obviously give executive director the highest increment.

2 . This will lead to unequal and unjust treatment. As the one who is getting lowest salary but performed well will become demotivated to perform well in future as irrespective of his performance he will be given lowest increment on the basis of his salary.

Benefit

1. This methodology of giving increment is very simple to understand and implement. Thus, involving lesser time in implementation and more focus can be paid towards performance.

III. Third allocation method may be to give increment by considering the performance of each and every individual . That is we can make total of maximum ratings and then proportionately on the basis of individual performance wise can give increment .

Cost :-

1. Some of the emoloyee like employee 2 who also have a lot of stress fir proper upkeeping of his family may not be able to make enough and thus due to family stress may not able to concentrate on work properly.

2. If we give increment in the basis of current performance it means we are ignoring the future potential of a talented employee .

Benefit :-

1 . It will create an atmosphere of competition among employees to perform better than one another and thus lead to better performance by the team as a whole.

2. It will boost the motivation level of those who are performing well and will motivate them to extend their performance to a new level or height.